Dell Considers Going Private, Again

Shares of computer and IT company Dell are soaring and were briefly halted on word of a report by Bloomberg News that the company is in talks to go private.

Bloomberg’s chatty banker sources say that Dell is in talks to do a deal with at least two private equity firms. However the discussions are preliminary and could fall apart at any time. Several large banks have also been tapped to help finance the deal, the story says.

This isn’t the first time that the “go private” option has been considered at Dell. In 2010, CEO and founder Michael Dell confirmed that he had considered taking the company that bears his name private.

Dell has been making a significant shift away from the personal computer business for which it is primarily known and toward enterprise hardware, software and services. The company has been making significant acquisitions in the space, the most recent one of note being the $2.4 billion deal for Quest Software after a brief bidding war with some private equity shops. Dell talked about the changes he’s making with AllThingsD in July

The problem is that Dell’s enterprise-facing bits aren’t outweighing its PC-centric bits just yet, and the transformation is taking a long time. Investors are getting impatient, Dell’s shares have fallen more than 40 percent from their highest point in 2012 and with the PC business looking ever more like a sinking ship, all options to keep the company on a strong footing are on the table. Dell shares were the 10th-poorest performer on the S&P 500 in 2012.

A go-private deal would be relatively easy to pull off on paper. Michael Dell owns somewhere between 15 percent and 16 percent of the outstanding equity in the company that bears his name. As of its most recent quarter, the company had about $11 billion in combined cash and short-term investments.

As is always the case in these matter, much will hinge on how much Dell the company is worth and what metrics those involved use to reach that determination. In a research note to clients issued last week, Sanford Bernstein analyst Toni Sacconaghi took a stab at Dell — along with rival Hewlett-Packard — by breaking it down into a “sum of its parts” and envisioning a hypothetical breakup of the company.

His conclusion is that Dell is worth about $12 a share, mainly because the PC business would sell for a fraction of its sales thanks to its declining fortunes: He estimated that the PC business would sell for 0.2 times sales. Additionally, even though Dell has been working hard to transform itself into an enterprise company, Dell’s enterprise-focused businesses would sell for a discount of about 25 percent versus its competitors. Its services business would sell for about the equivalent of its annual sales, comparable to those businesses at CSC and Accenture. It’s no accident that Dell is trading at only a little bit above the $12 a share that Sacconaghi suggested it is worth.

Then again, now that the news is out and the shares have popped, the urgency might wear off.

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